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Britain slaps one-time tax on bankers' bonuses

Financial institutions will pay a 50% levy on all bonuses exceeding about $41,000. Money from the move, which comes before election season, would be earmarked for helping people find jobs.

December 10, 2009|By Henry Chu
  • British Finance Minister Alistair Darling poses for photographs with his pre-budget report outside the Treasury, in London.
British Finance Minister Alistair Darling poses for photographs with… (Carl de Souza, AFP/Getty…)

Reporting from London — Tapping into widespread public anger, the British government Wednesday unveiled a one-time tax on bankers' bonuses to discourage big year-end rewards and to wrestle back some of the taxpayer money that went into bailing out the financial sector.

Any bonus exceeding 25,000 pounds, or about $41,000, will be hit with a 50% levy under the new policy announced by Alistair Darling, Britain's chancellor of the exchequer. Darling told Parliament the tax was only fair because the government injected billions of pounds into the banking system to help it stay afloat through the global financial crisis.

"There is no bank which has not benefited, either directly or indirectly, from this help," Darling said. "However, there are some banks who still believe their priority is to pay substantial bonuses to some already high-paid staff.

"If they insist on paying substantial rewards," he said, "I am determined to claw money back for the taxpayer."

The levy could generate revenue of about $900 million for a government swimming in debt. The money would be earmarked for helping people find jobs.

As a populist measure, the new tax could help the ruling Labor Party score points with voters as it heads into an election season trailing the opposition Conservatives in every poll.

Bankers' pay is a hot-button issue in Britain, one of the countries hit hardest by last year's financial meltdown and one of the few large economies not to have emerged from the recession.

Unemployment lines have ballooned, and normally stiff upper lips curl in disgust at the thought of well-heeled bankers awarding themselves generous Christmas bonuses after having helped bring the world economy to its knees.

The new levy will not directly penalize individuals. Banks will have to pay the 50% tax on all employee bonuses over the 25,000-pound threshold.

Still, negative reaction from financial workers and other critics was swift, with one unnamed senior banker complaining to the Financial Times of "extreme victimization."

In the last few days, as word of the new tax has been leaked out, bankers have even spoken of taking legal action, arguing that they are being unfairly discriminated against as a class.

Critics say the levy could spark an exodus of top talent from British banks to competing foreign institutions, or even encourage some banks to pull up stakes from London's financial district and head for other centers, such as Zurich, Switzerland.

But the government is counting on the one-time nature of the tax to blunt any urge by banks or bankers to leave.

The opposition Conservatives did not say whether they would endorse or oppose the levy. The last time this type of windfall tax was imposed on the banking sector was in 1981, under a Conservative government led by Prime Minister Margaret Thatcher.

But one party official suggested that the tax might hurt consumers.

"The real test of this new tax will be whether it curbs bank bonuses instead of curbing bank lending," said George Osborne, the party's spokesman on finance.

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